In this Section:MDRT INSIGHTS

Supplementing Retirement Plans With Life Insurance

He was saving his nickels for the day he retired, but his early demise didn’t let him enjoy retirement. Gone by the age of 62, my father-in-law had spent decades contributing to a traditional retirement plan that was never used. But even if he had survived long enough to enjoy a decade or two of retirement, the retirement plan alone never would have provided the lifestyle he was accustomed to.

Defined benefit plans, which once stood the best chance of matching your retirement lifestyle, have been relegated to times past. At $18,000 a year, today’s 401(k) limit is hardly enough to keep up with the anticipated expenses a retiree will face. Insurance premiums alone in retirement can practically bankrupt you, whether it’s premiums for Medicare and supplemental insurance, long-term care insurance, homeowner’s insurance or liability insurance.

There are also taxes that don’t go away simply because you’ve retired, such as real estate taxes on a lovely retirement condominium or income taxes on money withdrawn from a traditional retirement plan. Going out to see a movie or eat at a restaurant is getting more and more expensive. Then what would be left over to pay for travel or buy the grandkids presents?

The only option is for clients to start saving more than they think they need. Once they have maxed out their traditional retirement plan, a well-thought-out life insurance program can be a smart tool for additional savings.

Planning for Unexpected Death

Life insurance primarily can help protect clients in the case of unexpected death. If a client lives long enough and sticks to their retirement plan, they have a reasonably good chance of meeting their goal. But if that client dies unexpectedly, a qualified retirement savings plan wouldn’t be able to fill in the financial gaps like a life insurance policy would. Since life insurance is the only vehicle that can fully complete the deliverance of a vast sum of money immediately after a client signs up for a policy, it protects clients in a more complete way than a traditional retirement plan could.

According to a recent study conducted by the Million Dollar Round Table (MDRT), 61 percent of Americans said their families would assume debt if they died tomorrow, and 38 percent of them said the debt would be $10,000 or more. Of those who have dependents, 47 percent said their dependents would run out of money in two years or less without their personal income.

If a client relies on their retirement plan to be their safety net in the case of unexpected death, it can put their family at serious risk. An individual retirement account or 401(k) plan simply cannot complete the savings element for their spouse or children like life insurance can.

A More Stable Investment Option

Individuals using a qualified plan to save for retirement have limited investment options, typically confined to purchasing stocks and bonds, either directly or through mutual funds and exchange-traded funds. In doing so, they may be exposed to market volatility, which may have been OK earlier in life but becomes less desirable for people as they prepare for retirement. For many clients, riding the ups and downs of the market is not an ideal way for them to save.

Using whole life insurance to boost retirement savings is a great option for clients who do not want to be exposed to market volatility or losses that can occur during a down year. By contrast, the dividend payout of a whole life insurance contract is far less volatile than that of a typical stock portfolio.

Becoming Warriors for Financial Education

Advisors today should focus on educating clients and inspiring them to develop ambitious retirement savings early on, explaining the different investment options, and monitoring their progress year after year. Where possible, encourage them to max out their retirement plans. If there is still some disposable income left over, look to life insurance as another tool in your arsenal.

Perhaps one of the biggest challenges is getting millennials to engage in conversations about products such as life insurance that aren’t inherently attractive or interesting. There is a big opportunity for advisors to reach millennials by engaging in financial education and working in tandem with their employers. Although it is an employer’s responsibility to provide access to education on their qualified plans, too many companies fail in this education role.

Advisors would do a great service to their industry by focusing on education rather than sales. If advisors take it upon themselves to become warriors for financial education, the public would be more inclined to engage in discussions on how to save for retirement and protect their futures.

Mark Dorfman, CLU, ChFC, is CEO and founding partner of ODI Financial. He has been a member of the MDRT since 1997. He was appointed 2008 Top of the Table chairman and divisional vice president. Mark may be contacted at [email protected]